The tail end of this fall's earnings season has been more than a little exciting for a pair of healthcare-related growth stocks. Shares of TransMedics Group (TMDX 1.60%) and Verve Therapeutics (VERV +0.00%) rose more than 50% in the first week of November.
Just because they popped recently doesn't mean they can't rise much further. Let's look at what drove these stocks through the roof recently to see why they could shoot much higher in the years ahead.
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TransMedics Group
Shares of TransMedics Group jumped about 30% higher in a single trading session after the company reported third-quarter results. Net revenue rose 159% to $66.4 million and the company raised its revenue expectation for the year from a range of between $180 million and $190 million to a range of between $222 million and $230 million.
NASDAQ: TMDX
Key Data Points
TransMedics manufactures an organ care system (OCS) that is approved by the U.S. Food and Drug Administration (FDA) to preserve donated hearts, lungs, and livers. By pumping warm blood through solid organs, the OCS allows surgeons to implant donated organs that they otherwise would have left to rot. The TransMedics OCS also allows transplant centers to cast a wider net because it allows organs to remain viable over much longer distances than by using a styrofoam cooler filled with ice.
Instead of simply manufacturing an OCS, TransMedics is positioning itself as a specialized logistics service provider for transplant centers and hospitals. Earlier this year, the growth of the company's national OCS program was constrained by a lack of available charter flights. TransMedics remedied its logistical challenges by acquiring an aviation company this summer. The huge increase management just made to its 2023 revenue outlook suggests that buying an aviation company was the right move.
There are other companies building devices that can perfuse organs with warm blood but TransMedics seems likely to retain the lion's share of the transplant logistics market. TransMedics is charging forward with clinical trials that prove its OCS leads to better outcomes for patients than today's lackluster options. Future competitors, though, will need to show their devices can outperform the TransMedics OCS, not ice and styrofoam.
Shares of TransMedics are trading for more than 10 times trailing sales. This is a high multiple, but this company appears likely to remain the leading organ logistics provider for at least another decade. Adding some shares to a portfolio now to hold for the long run gives you a great chance to outperform.
Verve Therapeutics
One of The Verve's biggest hits in the late 1990s was a song called "The Drugs Don't Work." Luckily for Verve Therapeutics, the management team at Eli Lilly (LLY +2.72%) doesn't pay much attention to decades-old rock ballads.
NASDAQ: VERV
Key Data Points
Shares of Verve Therapeutics have nearly doubled since Eli Lilly paid Verve's collaboration partner Beam Therapeutics $250 million upfront for rights to work with Verve. Eli Lilly, one of the world's largest pharmaceutical companies, could co-develop and co-commercialize Verve's base editing programs that target cardiovascular conditions such as high cholesterol.
Verve Therapeutics' base editing candidates aim to permanently alter the production of specific proteins without breaking DNA strands to make edits. These light-tough alterations could be a vast improvement over previous gene-editing therapies.
Verve Therapeutics' lead candidate, VERVE-101, is enrolling patients born with heterozygous familial hypercholesterolemia (HeFH), an inherited condition that leads to stubbornly high LDL cholesterol. If treatment of the relatively small HeFH population with VERVE-101 appears safe and effective, it could eventually become a blockbuster drug for a much larger population of patients with high cholesterol.
Investors won't have to wait long to see initial trial results for VERVE-101. The company is scheduled to announce interim data from an ongoing phase 1 trial on Sunday, Nov. 12.
Clear signs of efficacy without any safety issues could soon push Verve Therapeutics stock higher. After Eli Lilly's vote of confidence, though, some success is already expected.
Verve Therapeutics is still in early clinical trials with a treatment that will need to prove itself capable of long-term benefits without safety issues. This stock could climb higher but it's only appropriate for investors with a high tolerance for risk.
